14-18 Hirsch-Hartmann SGA-OEGA 2013 OK
14-18 Hirsch-Hartmann SGA-OEGA 2013 OK
14-18 Hirsch-Hartmann SGA-OEGA 2013 OK
INTRODUCTION
While the competitive environment hypothesis postulates that firm profits which deviate from the competitive norm cannot exist in the long run, such
persisting abnormal profits are rather the normal
case in the real world. Although there is a great
quantity of studies analyzing profit persistence in
entire manufacturing sectors (e.g. Mueller, 1986;
Gschwandtner, 2005), empirical evidence for the
European food industry and its subsectors is still
scarce. Therefore, this paper tries to fill this gap by
analyzing the phenomenon of profit persistence in
the European dairy industry. The study is based on a
large sample of 590 European dairy processors.
THE MODEL
Starting with Mueller (1986) the simple autoregressive process of order one AR(1) has become the
econometric cornerstone of the empirical profit persistence literature. The AR(1) is a simple regression
of firm is abnormal profit at time t ( i,t ) on the
immediate previous level:
i ,t i i i,t 1 i ,t
p i
i , t j ( X j ,i ,t ) j ( X j ,i , t ) i ,t 1 i ,t
j
(2)
(1)
teristics that are expected to influence profit persistence. The impact of the X s on short-run persisj
mean and constant variance. We extent this approach according to Gschwandtner (2005) by estimating up to four lags for each firm and afterwards
using Schwarz-Bayesian Information Criterion (SBC)
where
i,t
Stefan Hirsch and Monika Hartmann are from the Institute for Food
and Resource Economics (ILR), University of Bonn, Germany ([email protected]).
ic signs of the j s.
28
Variable
Coeff. ( )
MS*i,t-1
0.001**
MS
-0.000**
Age*i,t-1
-0.045***
Age
Variable
Ln TA*i,t-1
0.136*
Ln TA
0.007
Gr. TA*i,t-1
0.006**
Gr. TA
0.001**
-0.000*
Gear
-0.000*
1/Curr*i,t-1
-0.408***
1/Curr
-0.023***
HHI*i,t-1
9.060***
HHI
0.177
NF*i,t-1
-0.605
NF
-0.092***
-2.211***
Gr. NF
0.014
R&D*i,t-1
-1.961***
R&D
0.024
CR5*i,t-1
-11.925***
CR5
-0.137***
Mean
All firms
Coop.b
All otherc
0.094
-0.184
0.163
s sign.a 0
% of
41.2
77.3
32.2
s sign. >0
% of
9.8
0.0
12.3
s sign.a <0
% of
31.4
77.3
b
19.9
c
Gear*i,t-1
Gr. NF*i,t-1
Wald
Hansen
AR(2)
CONCLUSIONS
To summarize, the results show that profit persistence in the dairy industry is essentially lower compared to other sectors outside the food industry. The
low mean i s in the food industry can be attributed
to a high degree of market saturation, strong price
competition and a highly concentrated retailing sector whose bargaining power is even strengthened by
a high and still increasing share of private labels.
Similar to previous results for the whole food industry firm size has a positive impact on profit persistence while R&D has a negative effect.
REFERENCES
Baltagi, B. H. (2008). Econometric Analysis of Panel
Data, 4th ed. Chichester: John Wiley & Sons.
Bowman, E. H. (1980). A Risk/Return Paradox of
Strategic Management. Sloan Management Review
21(3):17-31.
Gschwandtner, A. (2005). Profit persistence in the
very long run: evidence from survivors and exiters.
Applied Economics 37:793-806.
Hirsch, S. and Gschwandtner, A. (2013). Profit Persistence in the Food Industry: Evidence from five
European Countries. European Review of Agricultural
Economics, forthcoming.
Loderer, C. and Waelchli, U. (2010). Firm age and
performance. Working Paper, University Bern.
Mueller, D. C. (1986). Profits in the Long Run. Cambridge: Cambridge University Press.